Buyers in the dark about mortgages
New research into home-buyers has found that almost one in four Australians didn't know the interest rate they would pay when they took out their loan: the older the buyers are, the less concerned they are about interest rates; and many buyers are under the misconception they are not paying extra for features of their loan.
The study, commissioned by CPA Australia, found homebuyers were disturbingly uninformed.
Considering that the increasing cost of housing is making the Aussie dream of owning their own home harder to turn into reality for many people, CPA Australia notes that it seems people are turning a blind eye to the cost when choosing a home loan.
The research results are surprising, considering public anxiety about further interest rate rises. Over half the respondents indicated they aren't exactly sure what current interest they are paying on their home loan. Even small changes to the rate can have a significant impact on their repayments.
The research found that borrowers were more concerned about the relationship they have with their lender than the interest rate they are charged. 43% of respondents claimed existing or past relationships as the primary reason for their choice, with fees and charges second.
Middle-aged and older buyers were found to be less concerned by interest rates than younger buyers when taking out a mortgage.
Over half of those interviewed under 35 years of age said monetary aspects such as competitive rates motivated their choice of mortgage product, compared with 27% for those aged over 40.
A large majority (70%) of respondents expected to pay off their mortgage early, with mortgage features such as redraw, offset or all-in-one accounts being key components of this strategy. More than half (54%) chose a mortgage product with these facilities on the basis they would help them pay off the loan faster.
Of those surveyed, 86% claimed to have features attached to their loan and more than half said they are not being charged extra for these features.
However, after examining data from the six major banks, RateCity confirms that these services do cost more.
On average, mortgagees are paying 0.67% more to have an offset facility and 0.68% more to have a line of credit. That's equivalent to over $34,000 extra you will pay on a $250,000 loan over 25 years.
Borrowers are urged to find out about all extra costs associated with a loan and to beware of the traps associated with redraw and offset facilities.
According to CPA Australia, redraws aren't always a fast track to financial freedom. In fact, 64% of those interviewed admitted they have used their redraw, offset or all-in-one account to fund personal expenses, rather than pay off their loan faster.